Every four years there is an event that conditions the entire Bitcoin ecosystem. It is a crucial moment for miners, as the amount of mined bitcoins is halved. It is known as the ‘Bitcoin halving’ and it is an event intrinsic to the cryptocurrency itself that already happened in 2012, 2016 and 2020. The next one will be in 2024. And there is a lot of uncertainty about what will happen from that moment on.
Splitting the benefits of mining in two. The ‘halving’, as its name suggests, divides by two the amount of bitcoins that are mined for validating transactions. The next event is planned for April 2024 and, as described by fortuneminers will see their benefits greatly reduced.
If currently about 6.25 BTC are obtained for each block, which is equivalent to about 172,600 euros, it will go on to get 3.125 BTC per block, about 86,300 euros. This is with the current change. It is true that the ‘halving’ has traditionally meant significant increases in the value of Bitcoin itself, but it is still a drastic decrease in profits for miners.
The last few times, Bitcoin has skyrocketed. It is pure speculation, but the confidence is that the ‘halving’ will help to trigger the price of the cryptocurrency. Before the 2012 halving, the all-time high had been $30. Four months later, it was already over $270.
Something similar happened in 2016, when it grew by 290%. And even more in 2020, when Bitcoin shot up 560%. This increase that has been repeated to date is the hope of the miners so that their activity continues to compensate.
They are still needed for the long term. One of the greatest strengths of Bitcoin is that it follows the project marked from the beginning. In 2028 there will be another ‘halving’, where miners will get 1.56 BTC per block. And so progressively. The ultimate goal is, by 2140, to reach the total of 21 million Bitcoin. Once that point is reached, they can no longer be mined.
The economics of mining is highly dependent on energy. GPUs improve and the price of Bitcoin varies, but the most determining factor to see if the numbers come out for miners is the energy consumed.
Jaran Mellerud, crypto mining analyst at Hashrate Index, explains that mining is expected to drop to “six cents per kilowatt hour” after the halving. But he also points out that the average cost of mining is about eight cents per kilowatt hour.
40% of the miners will no longer get the numbers. This would mean that 40% of the miners would have an operating cost above the benefits they would obtain mining bitcoin after the ‘halving’. Which would lead to many miners having to abandon their activity because it was not profitable.
And you have to add the outstanding debts. It is true that in 2023 Bitcoin has been recovering ground, but it is still a long way from the all-time high of almost $69,000 that it reached at the end of 2021. This drop together with the rise in the price of energy has led to the cryptocurrency mining industry being in huge debt.
According to Luxor Technologies estimates, miners owe globally between 4,500 and 6,000 million dollars. A level still very high, although less than the 8,000 million dollars of debt they had in 2022.
The cost of producing a Bitcoin is going to exceed $40,000. Are the JPMorgan analyst estimates. If in 2022 it was possible to lower about $13,000, for after the ‘halving’ it is estimated that the cost of producing a bitcoin will easily double and will be around 40,000 dollars. This is the psychological figure that could mark the future price of Bitcoin itself.
This scale does not include the cost of the debt, the management of the equipment, the rent of the place or other data beyond those purely related to the purchase of the equipment and its energy requirement. A cost increase that will leave many miners behind.
Who will survive? In the first place it will depend on the price of Bitcoin itself. If it increases following the needs of the miners, there will be more possibilities for those who have large mining farms. If the price of Bitcoin does not skyrocket as expected, only those miners with very low operating expenses (below those six cents per kilowatt hour) will be able to continue.
To achieve this, most are already betting on energy efficient farms, often based on renewable energy. Bitcoin mining is becoming professional, but many will fall by the wayside.
Image | Axel Castillo
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